By Mike Miles
June 17th, 2013 | Uncategorized
Q. I have unfortunately neglected my Thrift Savings Plan since joining federal service in 2007. I started with the G Fund, stayed with it during the crash, and am still 100 percent in it today. I realize that was a huge mistake; the stock funds have done extremely well especially this past year. Would you recommend I dollar cost average in over the next six months or year? My instinct is to stop these low returns and get into the bond and stock funds and out of the G, but if the market takes a dive this summer, I will be very unhappy.
I have a 401(k) self-directed plan with one of the brokerages, with stocks, bond funds, cash, but I really have not been successful in managing it with individual stocks. I discussed possible asset management programs with Schwab and Vanguard. Do you think that, with their fees of 0.75 percent to 1 percent, that they can beat over time just transferring into my TSP? Do you have any suggestions about a service that helps me rebalance the allocations among the five funds over time, or change if there are economic concerns?
A. If you don’t know what to do, then I suggest that you stop fooling around, transfer as much of you money as possible into your TSP account and put it in the L Fund that most closely corresponds to your life expectancy. You’d be a fool to trust a broker or fund company with your financial decisions.
June 5th, 2013 | Uncategorized
Q. I have between 10 and 15 years to work until retirement (I am 52 yrs old). Right now, my contribution allocation is:
S: 25 percent
C: 25 percent
L: 20 percent
G: 30 percent
The distribution is more diversified. What do you think? I don’t know what I am doing; therefore, I am just guessing.
A. Your allocation is basically: 50 percent stocks, 20 percent bonds and 30 percent cash. This would generally be considered a moderately conservative allocation. Whether, or not, it’s right for you is impossible to say without more information and analysis, but it doesn’t appear to be grossly inefficient to me.
June 5th, 2013 | Uncategorized
Q. I am coming up on 10 years in the federal government and have not done a good job with my Thrift Savings Plan. I have left it at 100 percent in the G Fund, contributing 5 percent of my salary to TSP. I am now looking to maximize my TSP contribution (although perhaps not right away; I am considering increasing it to 8 percent this year and the upping it again next year until I’ve maxed it out). I was planning to put the additional contribution this year into the L Fund. I am almost 35, will soon have two kids and am married. Thoughts on how to better allocate my contributions?
A. If you want to do it yourself and don’t know what to do, I suggest that you put it all into the L Fund that most closely matches your life expectancy. To use my usual airplane analogy, this is like advising you to fly straight and level at 20,000 feet. I have no idea if it will get you where you want to go, but it’s the safest alternative without more information.
June 3rd, 2013 | Uncategorized
Q. I’ve participated in the Thrift Savings Plan since its inception as a CSRS employee and plan to retire next year. My current contribution allocation is 100 percent to the L2020 Fund and has been since that fund was created in 2005. Prior to the creation of the L funds, I had allocated my contributions equally to the C and G funds, which I have left untouched in the account. The account’s present holdings are approximately 50 percent L2020, with the remainder being 25 percent C and 25 percent G Fund. What should I now be doing, if anything, with those pre-L2020 account assets?
A. You should be competently and diligently monitoring and managing them to serve your financial goals with a minimum of risk. Is your current asset allocation arbitrary? If so, you should rethink it.
May 13th, 2013 | Uncategorized
Q. As precaution for what I thought was going to be a market decline, in December, I moved $350,000 out of my Thrift Savings Plan accounts from the C, S, and I fund (60 percent, 20 percent, 20 percent) to the G Fund. The end of the year came and went with no crash. The government had several “doomsday” dates that kept me guessing on market reactions. All have come and gone and the market is still going strong.
I didn’t change my paycheck allocations, so I’ve continued to put money into the above funds in the percentages shown, so at least those funds are dollar cost averaging.
I don’t want to “buy high,” so what do I do? Keep the bulk of my funds in G until the market dips enough for me to get back in? Or take my spanking (I’ve “lost” $50,000 during this time) and get back in now?
A. You’ve just provided a textbook example of the problem with timing the market. If you’d studied the pros and cons of what you were doing before you did it, you would have known better. On one hand, the market could keep right on going without you, and the odds are that it will be higher tomorrow than it is today. On the other hand, if you didn’t like the price of the market in December, I can’t imagine why you would like it any better today. Selling low and buying high certainly isn’t a winning formula.
May 13th, 2013 | Uncategorized
Q. I’m 25 years old, series 1811 and have been contributing 5 percent into the Thrift Savings Plan (FERS) for three years. Until last week, I was contributing 100 percent into the L2040 fund, but now I’m doing 65 percent into the S Fund and 35 percent into the I Fund. Since I still have about 32 years until mandatory retirement, do you think I am making the right TSP choices now, and do you have any recommendations?
A. Your allocation is risk-inefficient. You could reconfigure it to deliver similar expected growth with much less volatility. If you don’t know how to do that, then I suggest that you go back to using the L funds.
April 29th, 2013 | Uncategorized
Q. I am a 48-year-old GS-14/7 with about $240,000 in my Thrift Savings Plan (I have a little more in a prior 401(k), and my wife makes more than I do but does not have a 401(k) plan…I am willing to take reasonable risks).
I have contributed the maximum at 43 percent C, 22 percent S, 25 percent I and 10 percent F for several years and rebalanced each year. Indeed, I stubbornly left it like that during the crash but have recovered nicely.
I recently borrowed $30,000 (yes, I know, that is not the best course), at the G rate of 1.5 percent. It seems to me that that is akin to putting more than 10 percent of my savings in the very safe G Fund. So, while I left my existing F Fund balance alone, this “new” G money (interest on my loan repayments) plus the “bond bubble” threat convinced me to stop putting new money into either bond fund. I now contribute 48 percent C, 25 percent S and 27 percent I. (Yes, I tweaked the ratio a little due to lackluster I Fund performance and good S Fund performance).
Is it correct/smart to treat the interest I am paying myself as a sort of surrogate G Fund investment? Secondarily, are these ratios out of whack for a (moderately) aggressive portfolio?
A. Your loan balance and the G Fund differ in a big way: The G Fund guarantees the principal and the interest on your investment with them; you do not provide the same guarantee. Your asset allocation is “out of whack” in that it is risk-inefficient. For the same risk you are taking, you could achieve a higher expected rate of return by adding allocations to the remaining TSP funds.
April 9th, 2013 | Uncategorized
Q. I will have approximately $550,000 in my Thrift Savings Plan when I retire this year at age 60. In addition, I have other investments and will be receiving a federal pension. Using a 4 percent investment withdrawal rate and anticipating future Social Security benefits, my income will exceed expenses by 20 percent, so I may dial back the 4 percent to something less. Considering this and with a willingness to accept a moderate amount of risk, what would be an appropriate TSP fund allocation for a younger retired person?
A. I can’t tell you what is right for you without a lot more analysis and understanding. The exact nature of your financial goals and the timing of cash flows is critical to the decisions you face. It’s kind of like saying your head hurts and asking what you should do. The truth is that you should put the effort into figuring out the right thing to do before you do anything else. Otherwise, you’re just guessing and you’ll pay the price if you guess wrong.
As I have written many times, however, if you don’t KNOW what to do, you should consider choosing the TSP L Fund that most closely corresponds to your life expectancy, or your joint life expectancy if you’re married. This doesn’t guarantee that your goals will be met, however.
April 3rd, 2013 | Uncategorized
Q. I am being considered for disability retirement in the coming months. My application is pending consideration from the Office of Personnel Management. I am a GS-14 FERS employee, 54 years old, with about 32 years of service. I have approximately $250,000 in the Thrift Savings Plan, and my allocations are as follows: 15 percent C, 15 percent S and 70 percent I. I realize that is somewhat aggressive, but it has been like that for about seven years or so, and I have been hopeful of the international home run. Regrettably, this hasn’t necessarily come to fruition. I will likely shelter some of my remaining funds in G or F when I find out if my retirement is approved.
If I should retire, I plan to withdraw approximately $150,000 to pay off my mortgage. Therefore, should something happen to me or if the market fails, at least my home is paid for. I will have a reasonable annuity, and my wife draws $1,800 monthly as a service-connected disabled veteran. Combined, I feel we will have adequate income, especially when our mortgage of $1,000 per month is satisfied. Not rich, but with no real debt ($15,000 vehicle loan) consistent income and no mortgage. Sounds OK to me. Or am I off-base?
A. I think that what’s off-base is that, like too many investors, you are willing to gamble — without knowing the odds — with your life savings. If you’re not willing or able to prudently manage the money, then it’s probably your safest bet to use it to pay off your mortgage. At least you won’t lose it overnight. This might mean that later on, however, if you need the money to pay your bills, it won’t be available. There is no easy answer. That’s why I’m in business. If you’d like to discuss your options, you can contact me through www.variplan.com.
April 2nd, 2013 | Uncategorized
Q. You have suggested that individuals invest their TSP funds in the life cycle fund most closely approximating their life expectancy. Would that still apply to a CSRS employee who does not anticipate accessing funds until age 70½?
A. Yes, but keep in mind that this was my advice to those who are not sure what else to do.